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Thursday, June 22, 2006

Tax Reform Awareness

Lots of communities are in the news lately discussing tax reform options. For Land Value Tax advocates, this is the perfect time to break out those letter writing templates.

What is LVT? The Land Value Tax is a tax on strictly land values and not a tax on capital or labor and in this respect is different then the property tax, which taxes mostly the capital on the land and not the land itself. If you want to know more, click on that wikipedia article above, visit my own FAQ, answersanswers.com, or wealth and want.

In this article is a series of polls in WV about the different taxes in WV. Many of the polls are useless. For example

According to the poll, 80 percent of registered voters said property taxes were a major burden or somewhat of a burden. About 12 percent said taxes on homes, land, vehicles and other property was not much of a burden. Another 6 percent said it was no burden at all.

Well stop the presses. Taxes are a burden to people. Man, I think I need a morning cocktail after that stunning revelation. Snark aside, there was some useful information, for example:

According to a newly released poll, 77 percent of registered voters in the state said they would likely support a restructuring of the state's tax code. Only 15 percent said they were unlikely to support such a change.

And more importantly:

West Virginia Chamber of Commerce President Steve Roberts said business leaders don't get excited about the upcoming discussions on the tax system. Some of that, he said, has to do with a fear the reforms will just shift burdens from one tax to another. What people want, he said, is a tax reduction.

"If you are just reshuffling the deck but it's the same game and same cards, people don't want to get involved," he said. "But if the state approaches this as a way to re-examine how the state spends money and to re-evaluate the entire system to make West Virginia a place people want to come to, start businesses in, invest in and spend money in, then there is an opportunity for discussion."

Now that has me thinking about writing a letter to Mr. Roberts. It is no wonder that Mr. Roberts (I am strategically avoiding any Henry Fonda references) is a little apathetic. Shifting money around from one bad tax base to another is a recipe for disaster.

Take those two pieces of information together and now we have something.

They polled on each of the different types of taxes and asked if they were a burden and the numbers were high in each, of course. Here is what I want to see: I want to see a poll if people would be willing to support ANY tax which combines many of these different taxes into ONE tax. Based on Mr. Roberts statements and the earlier poll, I would expect to find that most people would at least be willing to learn more about such a proposal.

West Virginia could shift to a tax strictly on land, mineral, and carbon rents. They could also slowly phase in a tax on just land rents, shifting away from the capital on the land. I would bet though, that the local population is not even aware of the LVT as a policy option.

The next story comes from Michigan. I consider the state of Michigan to be in my own personal top 5 of states I would like to see take serious LVT reform. Why? The are an old industrial state and these sorts of communities have a proven track record of implementing the LVT, take a look at some of the old mill towns in Massachusetts or Pennsylvania for example. The LVT saved those communities from ghost town or slum status, which has befallen some of their neighbors in New Jersey, Ohio, and Indiana. Further, the tax reform which has been done in Michigan has been counterproductive. They revised their property tax reforms in 1994, however, like Dr. Phil says: How’s that workin’ out for ya?

Michigan significantly reduced the state's property tax burden. Reforms instituted in 1994 have reduced the state's reliance on property taxes to fund schools.• Under the new property tax system, businesses pay 24 mills ($24 per $1,000 of assessed valuation) in school property taxes. • Michigan's property tax is assessed at the state and local levels, and abatements are allowed at both levels. • Taxable value of property is 50% of current market value, including both real and personal property. • Annual property assessment increases are limited by the State Constitution to the lesser of 5% or the rate of inflation.

Poverty rate in Michigan in 2004 was 13.3% and going up, not such a good outcome, ten years later, considering the national rate is 12.7%, although a whopping net gain of 1% since 1994.

The prop13 for Michigan is the real killer here. In fact, this is the measure which has probably caused most of the problems in Michigan and as times goes on will only cause more. Speculators will be able to hold land out of production without being taxed on the land, awaiting their windfall. To the speculator, they can store their wealth in the land for as long as is needed because the tax on the land is so incredibly low. This costs the state jobs by taking this valuable land out of production and it costs them more jobs because no one is investing capital (which takes labor) on the land. This is a good reason why so many have fled Detroit for the suburbs.

Michigan desperately needs to implement LVT on at least some level and they need to work hard to repeal the prop13 for Michigan.

The third state, another one of my personal top 5, is Ohio. Sales taxes are possibly worse then the income tax due to its extreme regresivity, and cutting the sales tax was one of the things the report recommended. Ohio, like Michigan, is an old industrial state with lots of old industrial towns which used to revolve around the “the factory” and this is no longer the case in many of those towns. When these factories packed up their bags for China, they left a lot of land which was then gobbled up by hungry speculators who were able to buy a lot of land on the cheap in prime locations, due to the low incidence of tax on this land and very often subsidies from the State, the speculators are able to sit on this land for as long as they need to, withholding this land from production and, like Michigan, costing the state jobs. Or, often, it is simply held long enough for the state to pay for a large subdivision where the factory once stood, chock full of McMansions and golf courses, which the state will pay for “to clean up the worthless site”. If they are so worthless, then why do the states invest money in them and why do speculators hold on to them?

The state subsidizing the suburban development would not even be necessary if land values were taxed and not the capital on the land. The market would respond on its own, landowners would sell or develop, and buildings would go up without the government needing to lift a finger. However, the Ohio state constitution prevents any sort of LVT reform. Any real tax reform revolves around implementing the LVT which for Ohio means an amendment to their State Constitution.

Write your state legislator and ask them to repeal this regressive and bad law or help me put togethor a list of contacts who can help in LVT reform.